Mortgage Boca Raton Financing
The banking system is very fragmented and there are literally thousands of banks and Savings & Loans to choose from. Despite the fact that the average mortgage Boca Raton loan-life is only five years, a high percentage of loans are fixed rate for 15, 20 or 30 years.
However there is a wide range of alternatives, variable rate, interest only, convertible (variable to fixed). Most variable rate loans have specified limits (capped at a certain interest rate) – in addition they may also limit the adjustment (e.g. only increase 1% every six months). Here are a few examples:
3/1 ARM — A 3/1 ARM is an adjustable-rate mortgage, or ARM, that has an initial interest rate for the first three years, and thereafter adjusts each year. Each annual rate adjustment is based on (or “indexed to”) another rate — often the yield on a Treasury note. The rate can only change within limits — by a specified amount each year, and a specified amount over the life of the loan.
30-year jumbo — A 30-year jumbo mortgage is a home loan that exceeds the limits set by federal mortgage institutions Fannie Mae and Freddie Mac (the 2005 limit is $359,650). Jumbo mortgages generally have a slightly higher interest rate than smaller (sometimes called “conventional” or “conforming”) mortgages.
30-year fixed — A 30-year fixed mortgage is a loan that has an interest rate that stays the same for the 30-year term of the loan.
If the downpayment for a mortgage Boca Raton on a property is less than 20%, then typically lenders set up an escrow account. This is a non-interest (for the lender) bearing account where the lender collects additional money each month to pay for real estate taxes and insurance policies, which are paid on the borrower’s behalf. Where you as a borrower lose out, is that the bank collects the escrow amounts in advance, which are held in a non-interest bearing account for up to a year.
Low downpayments are considered higher risk, and the lender may require that a borrower take out an additional insurance policy (called Private Mortgage Insurance PMI) until the required 80% equity has been reached. Some lenders do not insist on the PMI for low downpayments, but compensate with a higher interest rate payable.
With U.S. interest rates at 40 year lows, high interest rates are not a worry. But real estate moves in cycles, and anybody who remembers paying 16% remembers it well. In times where interest rates are higher than today, in the U.S. sellers often use ‘creative financing’ to sell their property. There are many options including the owner offering a mortgage, even avoiding banks. Just something to keep in your back pocket.